Long-term readers might remember my investment in Danier Leather, which, at the time, was a struggling retailer that sold leather coats, purses, handbags, and so on. Whips, probably too. OH I’M BAD.
The company had a tradition of slowly buying back its shares via tender offers, an outcome I viewed at the time as pretty likely. It would struggle along, make a little money, and then offer to buy back my shares at a nice premium. I’d sell and everyone would live happily ever after.
If I remember right, I paid about $9 per share.
We all know what happened next. Danier faced bankruptcy about a year later, thanks to the further deterioration of its market and retail’s struggles in general. I remember at the time thinking the company probably threw in the towel too early. It barely owed anything to creditors. In fact, it had been debt free up until about a month before going to donut land. I chalked it up to an odd case and moved on. It wasn’t until a couple years later until I learned my lesson once and for all — do not invest in trash retailers. I’ve since extended that ground rule to cover retailers in general. It’s serving me well.
Little did I know my initial feelings would be right. Danier had thrown in the towel too early. Here’s the story of the Danier Leather bankruptcy.
On March 21st, 2016, Danier Leather officially entered into bankruptcy proceedings. KSV Kofman Inc. was assigned as the bankruptcy trustee and Koskie Minsky LLP was assigned the task of representing Danier’s employees.
Danier had some decent assets heading into bankruptcy. It sold the lease for its largest store and headquarters to Michael Kors. It also had the option to sell other leases held in malls across Canada, although I’m not sure any were actually transferred. The company also sold intellectual assets to a firm called Rehan Marketing. The company also got some cash when it liquidated all of its inventory.
After paying the bankruptcy trustee for their work, Danier was left with approximately $36 million in cash. Just under half went back to creditors because they always get paid first. The rest — or a little more than $18 million — have been earmarked for shareholders. Thus far, some $11 million has been returned to shareholders.
This means I’ve gotten $4 per share from the Danier Leather bankruptcy proceedings. I remember the stock trading at $2 per share just before it went under, which would have been a nice profit. Still, I was thrilled to be getting anything back, never mind almost 50% of my initial investment. If only my other bankruptcy would have gone so well.
The bottom line
Overall I’m very pleased at what happened here. Sure, I lost money, but the Danier Leather bankruptcy could have been a lot worse for me. I recouped some of my capital and went on to fight another day. And there’s still a tiny bit of money left over, so I could still see a little more cash come my way.
It just goes to show that, at least sometimes, bankruptcy doesn’t mean shareholders lose everything. It’s never a great outcome, but this one worked out about as well as you could hope.
The most important part is the lesson learned. I now stay away from retailers in general and make it a rule to avoid crappy businesses as well. Sometimes that’s easier said than done, but at least I’m not actively wading into these situations enticed by cheap assets.